65-Day Election Worksheet
§663(b) permits a trust to treat distributions made within 65 days after year-end as having been made in the prior year — shifting income from compressed trust brackets to beneficiary brackets. From Chapter 19 of the Trust Administration Guide.
Inputs (prior tax year)
Election analysis
Mechanics & checklist
- 1. Estimate prior-year DNI by mid-January from preliminary Form 1041 numbers
- 2. Compare to actual distributions made in prior calendar year
- 3. Compute undistributed DNI
- 4. Evaluate beneficiary brackets vs the trust's 37% (above ~$15,200); NIIT adds 3.8% on the NII portion of undistributed DNI above the trust NII threshold (~$15,200)
- 5. Determine distribution to make under 65-day rule (by March 5 of year+1)
- 6. Execute distribution (cash or in-kind, document date and amount)
- 7. Elect on Form 1041 Schedule B line 6 (election is irrevocable)
- 8. Report on Schedule K-1 to each beneficiary (character preserved)
Why this matters
The trust's top federal bracket of 37% begins at approximately $15,200 of taxable income for 2026. NIIT adds 3.8% on the portion of DNI that is net investment income (interest, dividends, capital gains, rental/royalty, passive activity income) above the trust threshold — DNI composed of ordinary business income or IRA distributions is not subject to NIIT. A single individual reaches the same 37% bracket at $626,000+. The trust-to-individual ratio is approximately 40:1.
The 65-day election is the trustee's mechanism to capture this differential after year-end. A $50,000 distribution to a 24%-bracket beneficiary instead of retention at the trust's 37% (plus 3.8% NIIT if the DNI is investment income) saves roughly $6,500–$8,400 of federal tax — every year, depending on income character.
Source: Trust Administration Guide Chapter 19; sample election language in Appendix C.5.